Credit crisis puts £12bn MoD training project in jeopardy

The government's biggest private finance initiative, a multibillion-pound plan to hive-off training for the armed forces, is in trouble, subject to delays, financial problems, and increases in cost, the Ministry of Defence has said.

The long-planned project, known as the defence training review, first proposed a decade ago, has been put off for at least two years and its estimated initial cost has risen from £11bn to £12bn. The entire project is in doubt, according to independent observers.

Even inside the MoD, there is scepticism despite official optimism. "No decisions have been made, it involves a huge amount of money and the [current] proposal does not meet the needs," a defence official told the Guardian.

Problems faced have been compounded by the economic and banking crisis. Under PFIs, government departments and public institutions, such as schools and hospitals, sign decades-long contracts with firms who then run and finance the projects by borrowing funds.

The idea behind the review is to contract out training for the navy, army, and RAF in a single place, a former RAF aircraft repair base at St Athan, south Wales. Training establishments are currently scattered around the country.

The project involves planning applications and big investments in infrastructure projects as well as the sale of large amounts of existing MoD property. Defence officials have expressed doubts about the impact on military ethos.

Mark Pritchard, Conservative MP for The Wrekin, who stands to lose the Defence College of Aeronautical Engineering at Cosford in his constituency if the project goes ahead, describes it as a "privatisation too far".

He added: "St Athan does not have the infrastructure so it needs new roads etc. We have all that in the West Midlands."

The consortium and finance is unravelling, he continued, giving the MoD a "massive headache". He called on ministers to make an urgent statement in the Commons on the project.

A consortium called Metrix, consisting of Qinetiq, the MoD's privatised former research and development agency and Land Securities Trillium as equity partners, was set up to finance and manage the project. But Land Securities recently dropped out, leaving Qinetiq having to look for a new partner.

The review has two phases. The first, now estimated to cost £12bn, covers technical training, including aeronautical engineering and communications and information systems. The second phase, would include logistics, personnel administration, security, languages, intelligence, and photography.

In a statement to the Guardian, the MoD said the project had been "more difficult and prolonged than expected" and could fall victim to the "abnormal market environment" - a reference to its dependence on banks affected by the credit crunch.

The MoD also appeared to be referring to the collapse of the commercial property market and the problems that it may have selling its existing property.

It said "considerable progress has been made towards achieving an affordable, value for money, acceptable and deliverable project". But no contract was likely to be signed until next year at the earliest.

John Smith, Labour MP for the Vale of Glamorgan, which includes the St Athan site, said "the momentum is well and truly with the scheme". He added: "The MoD will find the money."

A spokesman for Metrix told the Guardian: "The programme is going well."

Such confidence is not widely shared. "By ploughing on, the MoD is wasting more and more money. The whole thing is a mess," said Alex Flynn, spokesman for the Public and Commercial Services Union which represents many of the workers involved.

Mark Hellowell, research fellow at Edinburgh University and an expert on PFI, told the Guardian: "Even if the project was affordable, the liquidity in the banking sector is not there to fund it. Given market conditions, it seems likely that some form of government intervention is necessary."